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strategy and business
Published: May 29, 2007

 
 

The Era of the Inclusive Leader

Methodology

This study required the identification of the world’s 2,500 largest public companies, defined by their market capitalization on January 1, 2006. We use market capitalization rather than revenues because of the different ways financial companies recognize and account for revenues. Thomson Financial Datastream provided the market capitalization of the top companies in each global region on December 31, 2005. For analytical purposes, we divided the global market into six regions: North America (including the U.S. and Canada), Europe, Japan, Rest of Asia/Pacific (including Australia and New Zealand), Latin America (including Mexico), and Middle East/Africa.

To identify the companies among the top 2,500 that had experienced a chief executive succession event, we used a variety of printed and electronic sources, including Corporate Yellow Book and Financial Yellow Book (both published by Leadership Directories, N.Y.); Fortune; the Financial Times; the Wall Street Journal; and several Web sites containing information on CEO changes (www.ceogo.com, www.executive-select.com, www.hoovers.com, and www.spencerstuart.com). Additionally, we conducted electronic searches using Factiva, Nexis, and general search engines for any announcements of retirements or new appointments of chief executives, presidents, managing directors, and chairmen; results of these searches were compared to the list of the top 2,500 companies. For a listing of companies that had been acquired or merged in 2006, we used Bloomberg. Finally, marketing personnel in Booz Allen Hamilton offices outside the United States added any CEO changes in their regions that had not been identified.

Each company that appeared to have experienced a CEO change was then investigated for confirmation that a change had occurred in 2006 and for identification of the outgoing executive: name, title(s) upon accession and succession, starting and ending dates of tenure as chief executive, the announcement date of both appointment and exit, age, whether he or she was an insider or outsider immediately prior to the start of tenure (and, if an outsider, whether he or she was an industry outsider), whether he or she had served as a CEO of a public company elsewhere prior to this tenure, whether the CEO had been chairman (and, if so, for how long), identity of the chairman at the start of the CEO’s tenure (if different) and whether that individual had been the CEO of the company, and the true reason for the succession event. Company-provided information was acceptable for each of these data elements except the reason for the succession; an outside press report was necessary to confirm the true reason for an executive’s departure. We used a variety of online sources to collect this information on each CEO’s tenure, including company Web sites, the Factiva database, www.transnationale.org, and proxy statements available on the U.S. Securities and Exchange Commission’s EDGAR database (for U.S.-traded securities). In some cases, when the online sources were unproductive, we contacted the individual companies by e-mail and telephone to confirm the tenure information. We also enlisted the assistance of Booz Allen offices worldwide as part of this effort to learn the reasons for specific CEO changes in their regions.

We then calculated regionally adjusted average growth rates (AGRs) of total shareholder returns (TSRs), including the reinvestment of dividends, if any, for each executive’s tenure. We did this for the total tenure, the first and second halves of the tenure, the first two years, and the final year. TSR data for each company and corresponding region was provided by Thomson Financial Datastream and Morgan Stanley. To assess the company’s health prior to each CEO’s tenure, we collected company and regional TSRs for the three years prior to each CEO’s start date and calculated AGRs.

 
 
 
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Resources

  1. Eleanor Bloxham, editor, Corporate Governance Alliance Digest: News and analysis on corporate governance. Click here.
  2. Ram Charan, “Boardroom Supports,” s+b, Winter 2003: Directors play a crucial role in selecting, training, and nurturing a new CEO. Click here.
  3. Rakesh Khurana and Katharina Pick, “The Social Nature of Boards,” Brooklyn Law Review, vol. 70, no. 4, Summer 2005: Unearths the relationship between board makeup and succession decisions.
  4. Chuck Lucier, Paul Kocourek, and Rolf Habbel, “CEO Succession 2005: The Crest of the Wave,” s+b, Summer 2006: Last year’s study heralded the end of the era of the imperial CEO. Click here.
  5. Ira M. Millstein and Paul W. MacAvoy, The Recurrent Crisis in Corporate Governance (Palgrave Macmillan, 2004): In seeking stronger governance, the authors make the case for an active board of directors led by an independent chair to take responsibility for corporate management.
  6. Michael Schrage, “Ira M. Millstein: The Thought Leader Interview,” s+b, Spring 2005: Reform board structures or accept more value destruction, the corporate governance doyen warns. Click here.
  7. For more articles on strategy, sign up for s+b’s RSS feed. Click here.
 
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